J. Earnings Per Share – Basic earnings per share (EPS) amounts are computed by dividing earnings, after the deduction of preferred stock dividends declared, by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive share equivalents outstanding.

The information used to compute basic and diluted EPS attributable to Alcoa common shareholders was as follows (shares in millions):


	Third quarter ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Net income attributable to Alcoa	$	44	$	149	$	379	$	109
Less: preferred stock dividends declared		18		—		52		1

Net income available to Alcoa common shareholders – basic		26		149		327		108
Add: dividends related to mandatory convertible preferred stock		—		—		—		—
Add: interest expense related to convertible notes		—		—		—		—

Net income available to Alcoa common shareholders – diluted	$	26	$	149	$	327	$	108

Average shares outstanding – basic		1,281		1,177		1,241		1,150
Effect of dilutive securities:
Stock options		1		8		4		6
Stock and performance awards		12		12		12		11
Mandatory convertible preferred stock		—		8		—		3
Convertible notes		—		—		—		—

Average shares outstanding – diluted		1,294		1,205		1,257		1,170

In the 2015 third quarter and nine-month period, 77 million share equivalents related to mandatory convertible preferred stock and 25 million and 8 million (weighted-average), respectively, share equivalents related to convertible debt (acquired through RTI – see Note E) were not included in the computation of diluted EPS because their effect was anti-dilutive.

In the first quarter of 2014, holders of convertible notes exercised their option to convert the notes into 89 million shares of Alcoa common stock. As a result, for the 2014 third quarter, these 89 million shares were outstanding for the entire period and were included in both basic and diluted average shares outstanding. For the 2014 nine-month period, these 89 million shares were outstanding for a portion of the period equivalent to a weighted average of 67 million shares. The 67 million shares were included in both basic and diluted average shares outstanding for the 2014 nine-month period. For the portion of the 2014 nine-month period that the notes were still outstanding debt, a weighted average of the 89 million share equivalents (22 million) would have been included only in the diluted average shares outstanding if their effect was dilutive.

Options to purchase 26 million and 3 million shares of common stock at a weighted average exercise price of $12.76 and $16.24 per share were outstanding as of September 30, 2015 and 2014, respectively, but were not included in the computation of diluted EPS because they were anti-dilutive, as the exercise prices of the options were greater than the average market price of Alcoa’s common stock.

In July 2015, Alcoa issued 87 million shares of its common stock to acquire RTI (see Note E). As a result, the basic average number of shares in the 2015 third quarter and nine-month period includes 58 million and 20 million, respectively, representing the weighted average number of shares for the length of time the 87 million shares were outstanding during the respective periods.